Mandatory IFRS Reporting and Shareholder Protection: Worldwide Evidence from Corporate Control Market

Abstract

According to the IFRS Foundation, the IFRS Standards reduce the information gap between capital providers and the people to whom they have entrusted their money, which in turn protect shareholders from expropriation by corporate insiders. Exploiting the staggered mandatory switches to IFRS reporting worldwide from 2000 to 2016, I test this assertion in the setting of the corporate control market. I find that on average, after the introduction of mandatory IFRS reporting, acquiring firms in a given country spend less on acquisitions in total and are less likely to use all-cash bids, which is consistent with previous research showing that stronger shareholder protection reduces agency costs and generally leads to higher stock market valuation. I further show that the effects are larger among acquiring firms domiciled in countries with weaker shareholder protection Pre-IFRS, suggesting that mandatory IFRS reporting acts as a substitute for the existing state shareholder protection.